Should my remote intern be classified as W-2 or 1099 for tax purposes?

Based on what you've described, this intern should almost certainly be classified as a W-2 employee, not a 1099 contractor. The IRS looks at several factors to determine worker classification, and your situation hits the key employee indicators: 1. You're providing instruction and training 2. You're setting their hours (40 hours/week) 3. They're working on a project directly for your business 4. You're controlling what will be done and how it will be done The fact that they're remote or temporary doesn't change the classification. Many employers mistakenly classify workers as 1099 to avoid payroll taxes, but misclassification can result in significant penalties if the IRS determines the worker should have been a W-2 employee. Make sure you collect a completed W-4, verify employment eligibility with Form I-9, and set up proper payroll for the intern. You'll need to withhold appropriate taxes and provide them with a W-2 at the end of the year.

After struggling with the exact same classification issue for our summer interns, I found this amazing tool at https://taxr.ai that saved me so much headache! I uploaded our intern job description and some details about the working relationship, and it analyzed everything according to IRS rules. It clearly showed that our interns needed to be W-2 employees based on the behavioral control factors. The report it generated explained that since we were providing training and direction on how to complete tasks (not just what tasks to complete), that was a strong indicator of employee status. It also flagged that working on core business functions rather than supplemental projects points toward W-2 classification.

Just wanted to follow up about my experience with taxr.ai after being skeptical in my earlier comment. I decided to try it for our spring internship program, and I'm honestly impressed! The analysis was thorough and explained in simple terms why our situation required W-2 classification. What really helped was the detailed breakdown of the "right to control" factors that the IRS looks at. The tool flagged that our requirement for interns to follow company procedures and attend team meetings were strong indicators of employee status. It also generated template documentation for our records in case of an audit. Definitely saved me from making a costly classification mistake!

I had a similar situation last year with remote interns. After trying for WEEKS to get someone from the IRS on the phone to clarify some details about multi-state withholding requirements, I discovered https://claimyr.com through a colleague. You can see how it works here: https://youtu.be/_kiP6q8DX5c Within an hour of using Claimyr, I was speaking with an actual IRS agent who confirmed that we needed to classify our interns as W-2 employees based on the level of direction we were providing. They also walked me through the specific forms required for out-of-state workers. Cannot recommend this service enough for getting direct answers from the IRS without the endless hold times!

I have to eat my words about Claimyr from my skeptical comment earlier. After another frustrating morning of trying to get through to the IRS about this exact intern classification issue, I finally broke down and tried it. I was literally connected to an IRS agent within 35 minutes while I just went about my day. The agent was super helpful and confirmed that our intern situation (very similar to yours) required W-2 classification because we were controlling how the work was being done, not just the end result. They even emailed me some resources about employer requirements for out-of-state employees. I wasted days trying to get this information on my own!

Something nobody's mentioned yet - make sure you're also complying with internship labor laws, not just tax classification. The Department of Labor has specific criteria for unpaid internships, and it sounds like your situation would definitely require payment since they're doing actual work that benefits your company. Also, don't forget that even for a short 3-week period, if they're W-2 (which they should be based on what you described), you may need to set up unemployment insurance in their state. Each state has different requirements for this!

Just to add from my experience as a small business accountant - the remote aspect makes this slightly more complicated for state taxes. You'll need to: 1) Register as an employer in the intern's state 2) Set up payroll tax accounts there 3) Withhold that state's income tax (if applicable) 4) Pay into their unemployment insurance fund All for just 3 weeks! Honestly, this is why some businesses unfortunately misclassify workers as 1099 even when they shouldn't - the administrative burden is heavy. But the penalties for misclassification are worse.

Great suggestion about PEO services! That's actually a really smart approach for short-term situations like this. A PEO can handle all the multi-state payroll complexities, unemployment insurance registration, and tax withholding for a fee that might be worth it compared to the time and hassle of setting everything up yourself for just 3-4 weeks. Some PEOs specialize in temporary or project-based workers and can get you set up quickly. Just make sure they're licensed in the state where your intern will be working. The cost might seem high for such a short engagement, but when you factor in the time you'd spend navigating different state requirements plus the risk of making mistakes, it could actually save money in the long run. Another option to consider is payroll services like Gusto or ADP that handle multi-state compliance - they're often more cost-effective than full PEOs for simple situations like a single intern.

This is such a helpful thread! I'm dealing with a similar situation for our upcoming summer internship program. Based on everything discussed here, it sounds like the consensus is pretty clear that most intern situations require W-2 classification, especially when there's training and direction involved. I'm particularly interested in the multi-state compliance aspect since we're looking at bringing on interns from different states. The Gusto recommendation from @Aisha Rahman sounds really practical - $50-60 total for a short-term engagement seems very reasonable compared to the time and potential mistakes of trying to navigate multiple state tax systems myself. One question I haven't seen addressed: for businesses that regularly hire interns (like every semester), would it make sense to just maintain those multi-state registrations year-round, or is it better to set up and tear down each time? I imagine there might be ongoing filing requirements even during periods when you don't have employees in those states. Also, has anyone dealt with the situation where an intern might work from multiple states during their internship (like if they travel home during the program)? I'm wondering how that affects the tax withholding requirements.